In the recent decision of
Anas Construction Sdn Bhd v JKP Sdn Bhd [2024] 2 CLJ 665, the apex court of Malaysia revisited the ambit of the jurisdiction of an adjudicator and principles of natural justice in adjudication proceedings.
BRIEF FACTS
The respondent, JKP Sdn Bhd appointed the appellant, Anas Construction Sdn Bhd as the main contractor for the construction and completion of a project under a construction contract (“
the Contract”). In carrying out the works under the Contract, the appellant had appointed consultants to provide a safety report. The appellant incurred consultant’s fees for the safety report, which the respondent failed to pay resulting in the initiation of adjudication proceedings under the Construction Industry Payment and Adjudication Act 2012 (“
CIPAA”).
In the payment claim and adjudication claim, the appellant pleaded clauses 28, 55 and 56 of the Contract to establish its cause of action against the respondent. In response, the respondent argued that the relevant clause in relation to the appellant’s claim would be clause 36.5 of the Contract which was not relied upon by the appellant.
The adjudicator allowed most of the appellant’s claim and in coming to the decision, relied on clause 36.6 of the Contract as he found that clause to be the most applicable to the appellant’s claim. Clause 36.6 of the Contract was not relied upon by the parties in the adjudication proceedings.
The respondent, dissatisfied with the adjudicator’s decision, filed an application to set aside the decision pursuant to section 15 of the CIPAA.
HIGH COURT AND COURT OF APPEAL
At the High Court, the Judge dismissed the respondent’s application to set aside the adjudication decision as the Judge found that the adjudicator did not act beyond his jurisdiction and acted fairly and independently.
The Court of Appeal disagreed with the High Court. The Court of Appeal found that the adjudicator had acted in excess of his jurisdiction when he decided on matters never raised and pleaded in the payment claim and adjudication papers. The Court of Appeal was also of the view that the adjudicator had breached the principles of natural justice by unilaterally relying on clause 36.6 of the Contract which was not pleaded by the appellant.
1
FEDERAL COURT
The appellant filed two appeals to the Federal Court and was granted leave to appeal on the following questions of law in both appeals:
Excess of jurisdiction
As a starting point, the Court dealt with the issue of the ambit and source of the adjudicator’s jurisdiction as provided under the CIPAA. The Court referred to section 27 of the CIPAA and noted that the wordings of section 27 is plain and unambiguous and as such, must be given its literal and ordinary meaning by the court. The Court then explained that the plain meaning of section 27(1) of the CIPAA is that the jurisdiction of an adjudicator is limited to matters referred to by parties to the adjudicator pursuant to sections 5 (payment claim) and 6 (payment response) of the CIPAA.
The Court was of the view that in complying with section 5(2)(b), the unpaid party must identify the cause of action and the provision under the contract that supports the cause of action. The Court further elucidated that the rationale for specifying the relevant provision is that the cause of action arises when there is a breach of a provision of the contract, or the payment becomes due under the provision of the contract. Therefore, the cause of action is subject to the agreed provisions in a contract.
The Court referred to
View Esteem to reiterate the emphasis made by the Federal Court on the need to identify the applicable clause of the construction contract which relates to the cause of action.
Applying the legal principles to the facts, the Federal Court was of the view that as the cause of action based on clause 36.6 was not relied upon by the appellant in the payment claim, the adjudicator had exceeded his jurisdiction in deciding the dispute based on clause 36.6 of the Contract, which was not the appellant and respondent’s case in the payment claim and payment response.
The Court was of the view that if the adjudicator found that the cause of action was established under a different clause of the Contract, then the matter should have been brought to the parties’ attention to enable the parties to extend the jurisdiction of the adjudicator as provided under section 27(2) of the CIPAA. For these reasons, the Court held that the adjudicator’s decision ought to be set aside as the adjudicator had acted in excess of his jurisdiction.
Denial of natural justice
The second issue considered by the Court was whether there was a denial of natural justice when the parties were not given an opportunity to submit on the applicability of clause 36.6, which was not in dispute. Referring to the Federal Court case of
Pacific Forest Industries Sdn Bhd & Anor v Lin Wen-Chih & Anor [2009] 6 CLJ 430, the Court noted that if the parties had been given the opportunity, the submission by the parties may have persuaded the adjudicator to decide differently. The Court then held that the failure to give parties the opportunity to submit on the issue of the cause of action under clause 36.6 before making the decision, is a denial of natural justice.
The Court then concluded by addressing the question of the application of strict rules of pleadings to adjudication proceedings. The Court was of the view that this issue did not arise and is misplaced as section 27(1) of the CIPAA sets out the limits of the adjudicator’s jurisdiction by reference to sections 5 and 6. The Court then answered this question which it termed as the “main question” in the negative.
Dissenting Judgment
In the dissenting judgment, Mary Lim FCJ was in agreement with the appellant that the three questions of law should be answered in the negative. Her Ladyship placed much emphasis on the fundamental principles of statutory adjudication and the purpose of the CIPAA’s enactment before setting out the following grounds in support of Her Ladyship’s view.
Question of Law No. 1
No pleadings in the CIPAA
In finding that the strict rules of pleadings do not apply, Her Ladyship was of the view that there are no pleadings in statutory adjudication. The terms “pleadings”, “plea” or “plead” do not appear in any of the provisions of the CIPAA. Her Ladyship found that not only would it be wrong to infer or read into what is patently not in the CIPAA, it would also be wrong to equate adjudication proceedings to court proceedings which principles and ramifications are provided under the Rules of Court 2012 enacted under the Courts of Judicature Act 1964.
Further, Her Ladyship was of the view that it would be erroneous and misleading to describe the payment claim and the payment response as “pleadings” when these documents, that are issued under sections 5 and 6 of the CIPAA, are not
per se referred to adjudication but the dispute arising from the payment claim and/or payment response that is referred to and adjudicated by an adjudicator.
Clause 36.6 of the Contract was cited by the appellant
In dealing with the respondent’s contention that clause 36.6 of the Contract was not “pleaded”, Her Ladyship examined the documents, only to find that clause 36.6 of the Contract was actually cited in two letters which form part of the payment claim and later the adjudication claim. Her Ladyship added that clause 36.5 of the Contract was specifically identified by the respondent in their adjudication response, and it would be unreasonable not to allow the adjudicator to look at the other subclauses of clause 36, including clause 36.6, after drawing the adjudicator’s attention to clause 36.5; and worse, to subsequently claim breach of natural justice when he did.
Section 5(2)(b) of the CIPAA
Her Ladyship also dealt with the issue of how much needs to be specified or particularised in a payment claim to meet the requirements of section 5(2) of the CIPAA. Her Ladyship made reference to the “common-sense” approach adopted by the Australian courts which approach essentially requires the payment claim to provide sufficient information to enable the non-paying party to understand the basis of the claim and to be able to accept or reject the claim, and if the non-paying party opts for the latter, to respond appropriately in the payment response. Her Ladyship was in agreement with the view propounded in
Terminal Perintis Sdn Bhd v Tan Ngee Hong Construction Sdn Bhd and Another Case [2017] 1 LNS 177 by Justice Lee Swee Seng (as His Lordship then was) that “
One should not be unduly critical or technical to the point of exacting an overly demanding treatment of a payment claim when it comes to whether it has met the requirements of section 5(2)(b) of CIPAA” as Her Ladyship found that such approach was sound and of common-sense.
Question of Law No. 2
On the issue of whether an adjudicator is prohibited from referring to a provision that is not specifically stated in the payment claim, Her Ladyship noted that the Court of Appeal had relied on the apex court’s decision of
View Esteem to hold that the adjudicator had no jurisdiction to adjudicate on clause 36.6 as the appellant had failed to plea clause 36.6 of the Contract in the payment claim. In this regard, Her Ladyship was of the view that the Court of Appeal had conflated subject matter jurisdiction as provided under section 27 of the CIPAA with documentational and procedural requirements under section 5 of the CIPAA.
Her Ladyship expounded the principle by the apex court in
View Esteem in respect of section 27 of the CIPAA that the adjudicator’s jurisdiction in relation to any dispute is limited to the matter of the claim which was referred to adjudication under the payment claim and payment response issued pursuant to sections 5 and 6 of the CIPAA. The subject of the claim (i.e. the cause of action that is identified in the payment claim and payment response) is the limiting factor. The details of the subject of the claim are those provided under sub-paragraphs (a) to (d) of section 5(2) of the CIPAA and that
“section 27(1) of the CIPAA has nothing to do with the grounds of the claim or the reasons to oppose the claim.” Both provisions are distinct and separate; and for that reason, Her Ladyship did not find that the appellant’s failure to refer to clause 36.6 of the Contract was fatal to the appellant’s case as the subject of the claim (i.e. the claim for the professional fee) was encapsulated in the payment claim, thereby giving the adjudicator the jurisdiction under section 27 of the CIPAA to decide on the same. In other words, Her Ladyship was of the view that the insufficiency of details of the claim in the present appeals did not deprive the adjudicator of jurisdiction.
Question of Law No. 3
On Question of Law No. 3, Her Ladyship was of the view that there was no basis for the respondent’s complaint to set aside the adjudication decision on the grounds of breach of natural justice or excess of jurisdiction as clause 36.6 was found to had been cited in the payment claim. Nevertheless, for the development of the law, Her Ladyship answered this question of law in the negative.
No excess of jurisdiction
Her Ladyship examined the adjudication decision and found that the adjudicator did not allow the claim based on clause 36.6 of the Contract but on the reason that “
the claimant has proved on a balance of probabilities, and that the respondent shall pay the costs of independent consultant which [sic] engaged by the claimant in produced [sic] the relevant report as instructed by the respondent’s consultants.”
In other words, the reason the adjudicator allowed the appellant’s claim for the professional fee to provide a safety report was not because of clause 36.6 of the Contract but because the appellant had led documentary evidence of instructions from the respondent or its consultants to produce such a report. In the circumstances, the citing and reference to clause 36.6 was peripheral and has no real bearing on the outcome of the claim as the post-termination clauses (i.e. clauses 55 and 56) were sufficient to accommodate the claim.
Her Ladyship also found that clause 36.5 of the Contract was raised by the respondent and the adjudicator was of the considered opinion that
“clause 36.6 of the Contract are [sic] is the one most applicable to the Claimant’s claim”. As the term
“most applicable” was used, Her Ladyship found that it was clear that the adjudicator did not say that clause 36.6 was the applicable provision or that it was the only applicable contractual term, the adjudicator simply said it was “most applicable”. In this regard, Her Ladyship was of the view that the adjudicator did not mean that the post-termination clauses 55 and 56 were not applicable at all.
No breach of natural justice
In addition, clause 36.6 which is part of clause 36 was drawn to the adjudicator’s attention by the respondent itself. Her Ladyship found that it would be artificial and totally impractical, if not naïve, to claim that the adjudicator cannot make his observations about some other subclauses of clause 36, including clause 36.6. The adjudicator ought to be entitled to look at the whole of clause 36 and the rest of the Contract. As such, Her Ladyship was of the view that the citing of clause 36.6 of the Contract was peripheral, almost a red herring.
Her Ladyship reaffirmed the principle set out in
Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358 - that the breach of natural justice must be material and not peripheral or irrelevant, which principle was adopted in
Ranhill E & C Sdn Bhd v Tioxide (Malaysia) Sdn Bhd & Other Cases [2015] 1 LNS 1435 and
Econpile (M) Sdn Bhd v IRDK Ventures Sdn Bhd & Another Case [2016] 5 CLJ 882 and a similar principle found in arbitration jurisprudence as enunciated in
Master Mulia Sdn Bhd v Sigur Rus Sdn Bhd [2020] 12 MLJ 198.
CONCLUSION
The Federal Court’s decision is likely to result in the import of the “
strict rules of pleadings” into statutory adjudication proceedings. An adjudication decision which considered a provision not specifically stated in a payment claim may be set aside as the adjudicator would be found to have acted in excess of jurisdiction. Yet, this approach is difficult to reconcile with the approach adopted in
View Esteem wherein an adjudicator would be in breach of natural justice in excluding or refusing to consider certain defences not raised in the payment response but raised by a respondent in the adjudication response.
Case Note by Jocelyn Lim Yean Tse (Partner) and Loshini Ramarmuty (Partner) of the Construction and Engineering Practice Group of Skrine.